PwC Comments on Tentative agenda decision: IAS 12 Income taxes - rebuttable presumption to determine the manner of recovery

PwC global network of firms does not support the tentative agenda decision as drafted. The firm supports the committee's conclusion that this item should not be taken onto the agenda. The firm also supports the committee's conclusion that the presumption in paragraph 51C of IAS 12,'Income taxes can be rebutted in other circumstances, which is based on the guidance in IAS 12. However, the final two sentences of the tentative agenda decision contain an interpretation of IAS 12 that is not supported by the guidance in the standard.

Comment letter

Mr Michael Stewart
Director of Implementation Activities
International Accounting Standards Board
30 Cannon Street
London
EC4M 6XH

17 October 2011

Dear Mr Stewart

Tentative agenda decision: IAS 12 Income taxes – rebuttable presumption to determine the manner of recovery

We are responding to your invitation to comment on the above tentative agenda decision, published in the September 2011 edition of IFRIC Update, on behalf of PricewaterhouseCoopers.

Following consultation with members of the PricewaterhouseCoopers network of firms, this response summarises the views of member firms who commented on the tentative agenda decision. ‘PricewaterhouseCoopers’ refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

We do not support the tentative agenda decision as drafted. We support the Committee's conclusion that this item should not be taken onto the agenda. We also support the Committee's conclusion that the presumption in paragraph 51C of IAS 12 Income Taxes can be rebutted in other circumstances, which is based on the guidance in IAS 12. However, the final two sentences of the tentative agenda decision contain an interpretation of IAS 12 that is not supported by the guidance in the standard. We do not believe the Committee should make interpretations or change current practice through agenda decisions, which are not subject to due process. The final two sentences of the tentative agenda decision should therefore be deleted.

We also disagree that if the presumption of recovery through sale is rebutted, the resulting deferred tax should reflect recovery of the carrying amount entirely through use. This is inconsistent with paragraphs 51C and 51A of IAS 12. Paragraph 51 C of IAS 12 states if the presumption is rebutted, the requirements of paragraph 51 and 51A shall be followed. Paragraph 51A states that an entity measures deferred tax liabilities and deferred tax assets using the tax rate and the tax base that are consistent with the expected manner of recovery or settlement. This guidance requires an entity to measure deferred tax assets and deferred tax liabilities using a dual manner of recovery if that reflects management's expectations. The approach required by paragraph 51A will most closely reflect the economic substance of the arrangement and provide useful information. We therefore suggest that the final two sentences of the second paragraph of the tentative agenda decision are deleted.

If you have any questions in relation to this letter please do not hesitate to contact John Hitchins, PwC Global Chief Accountant (020 7804 2497) or Tony de Bell (020 7213 5336).

Yours faithfully

PricewaterhouseCoopers